Eurozone leaders upbeat as Greek debt swap begins

Eurozone leaders said on Friday they were optimistic on prospects for a deal on a Greek rescue package next week despite high tensions after Greece adopted a raft of painful austerity measures.

Eurozone central banks also began a debt swap to reduce losses on their holdings of Greek government bonds after Italian Prime Minister Mario Monti and German Chancellor Angela Merkel held a conference call on the debt crisis with Greek Prime Minister Lucas Papademos.

The three ”were confident that a deal can be reached on Greece at the Eurogroup on Monday” in Brussels, the Italian government said of the conference call, which came after Merkel cancelled scheduled a visit to Rome.

The 17-nation eurozone is under pressure to approve a Greek rescue package of 130 billion euros ($171 billion) and a writedown on privately held government bonds worth 100 billion euros to avoid Greece defaulting.

A finance ministry spokesman in Berlin also said that Germany expected Monday’s meeting to take a decision but stressed there were still issues to be resolved, including setting up an escrow account for debt repayments.

There was also still no agreement on how to monitor Greece’s economic policy or on ensuring debt sustainability, said the spokesman, Martin Kotthaus, adding that European officials would be working over the weekend to clear the details up.

”We are coming ever closer to a final basis for a decision on Monday but ... there are still details to be cleared up,” he said.

”I assume that we will have a solid basis on Monday, from which the ministers will then be able to take a joint decision,” he said.

”However, it is still too early to say how the decision might turn out.” Eurogroup president Jean-Claude Juncker earlier said he was confident his colleagues could ”take all the necessary decisions on Monday” in Brussels.

France meanwhile condemned as ”irresponsible” any suggestion that Greece might default on its debt, following reports in recent days that some officials in Germany and northern Europe are mulling that possibility.

Asked on RTL radio whether Germany, Finland and the Netherlands might prefer to see Greece bankrupt than to continue to bail it out, Prime Minister Francois Fillon said ”everything must be done” to avert such an outcome.

”To play with the idea of a Greek default would be completely irresponsible,” the French premier said. ”It would be dramatic for the Greeks themselves and it would be dramatic for all Europeans.”

On Wednesday, German Finance Minister Wolfgang Schaeuble suggested there was a limit to Europe’s readiness to support Greece, warning: ”We can help but we are not going to pour money into a bottomless pit.” And on Thursday, Netherlands Finance Minister Jan Kees de Jager warned that the Greek rescue plan had failed to make much progress, telling lawmakers in The Hague: ”We’re back to square one.”

This drew a fierce response from Athens, where feelings about European high-handedness are running high. President Carolos Papoulias demanded: ”Who is Mr Schaeuble to taunt Greece? Who are the Dutch? Who are the Finns?”

Unpopular austerity measures demanded by the European Union and the International Monetary Fund have already led to street violence in Greece and anger at EU attempts to take greater control over Greek public finances.

On Friday, a central bank source told AFP in Frankfurt that eurozone central banks began exchanging some of their holdings of Greek government bonds for new ones to guard against losses on the investments.

The debt swap ”is in progress. The aim is to curtail any losses,” it said.

German daily Die Welt reported that the debt swap was to be completed by Monday and that profits would be distributed by the European Central Bank to eurozone member states to enable the money to eventually benefit Greece.

The move is seen as a key step in implementing the bond writedown part of the overall rescue deal. [AFP]

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